MARKET REVIEW

Global. Ahead of the US March inflation data, most Asian markets ended mixed amid worries over rising Covid-19 cases and potential lockdowns will derail economic recovery and test the limits of central banks' accommodative policies. In anticipation of the start of a strong 1Q21 earnings season tonight (consensus S&P 500 earnings is expected to grow ~25% YoY), the S&P 500 closed at an all-time high (+12 pts to 4141) and Nasdaq rallied 146pts to 13996 while the Dow ended -68 pts (from -200 pts) at 33677, shrugging off concerns about the halt in Johnson & Johnson’s vaccine rollout and strong U.S. inflation.

Malaysia. Tracking the tepid regional markets performance and government’s warning that Malaysia may be facing the 4th wave of Covid-19 during Ramadan, KLCI tumbled 10.7 pts to 1597.7 (24 KLCI constituents recorded losses). Trading volume decreased 0.3bn shares to 6.3bn shares valued at RM3.1bn while market breadth turned negative as the G/L ratio deteriorated to 0.44 (its 3rd decline below 1). Foreign investors expanded selling spree for a 4th straight day (-RM161m, 17.1% of trading value; 5D:-RM152m) while the local institutions (+RM126m; 41.9% of trading value; 5D:+RM72m) and retail investors (+RM35m; 39.4% of trading value; 5D:+RM80m) emerged as the major net buyers.

TECHNICAL OUTLOOK: KLCI

After logging 27 pts weekly gains, KLCI fell 10.7 pts yesterday to record its 2nd straight decline. Following the breakdown below 1603 (uptrend line support from 1452) and key SMA supports of 20D/30D/100D yesterday, near term outlook has turned mildly negative, potentially triggering further retreat towards 1584 (30W SMA) and 1573 (200D SMA) levels. On the flip side, a decisive reclaim above the downtrend hurdle will lift the index higher towards 1635-1646-1656 (200W SMA) zones.

MARKET OUTLOOK

Following the breakdown below 1603 (uptrend line support from 1452) yesterday and renewed foreign selling, KLCI could stay range bound (supports: 1584-1573-1564) as investors digest last week’s strong gains. The bull could face stiff hurdles at 1620 (downtrend resistance from 1696) and 1635 (18 Mar high) zones, given the lack of domestic fresh catalysts and concerns of elevated Covid-19 cases and Rt locally could derail a smoother economic recovery.

On stock selection, we like VS (RM2.90-HLIB Research –BUY-RM3.44 TP) as the biggest EMS player in Malaysia with solid track record, underpinned by a healthy order outlook brought by the steady demand of consumer electronic products and margin expansion from customer diversification efforts coupled with a major beneficiary of the prolonged US-China trade diversion. Technically, the stock is poised for a flag breakout soon. A successful breakout above RM2.94 will lift prices higher towards RM3.04-3.13-3.37 zones whilst supports are situated at RM2.85-2.70 levels.

Source: Hong Leong Investment Bank Research - 14 Apr 2021